- As already mentioned in our previous blog post, Blockchain is also a ledger but a digital one that records information in blocks thus forming a chain of blocks, and the transactions get reflected on various computer systems within a network. Thus, it is a decentralized digital ledger. Do you know that it is estimated that the financial sector will hit the $2.6 Trillion mark by the end of 2022? Yes, that’s true and it also throws light on the various challenges that are faced by the Financial Sector such as skyrocketing costs due to the existence of many stakeholders, unnecessary paperwork, and data violations. Using Blockchain technology in the financial sector will be enough to remove all the above problems.
- Do you want to know more about Blockchain and how it is used by the Financial Sector? If yes, we suggest you read on.
- In this post, we will be talking about the benefits of Blockchain in the Financial Sector and how the Financial Sector is taking major advantage of Blockchain technology.
Benefits of Blockchain in the Financial Sector
The benefits are as follows:
1) Blockchain makes transactions in the Financial Sector more secure and transparent – Since Blockchain is a rigid technology, data cannot be tampered thus adding to the security quotient of Blockchains. Also, transactions are transparent as users get to know about the same with the help of a public key. But that does not harm the security of data as transactions with the stakeholders can be kept private with a private key. Also, Blockchain allows financial data to be verified without having to disclose the same.
2) Blockchain helps the Financial Sector to keep the costs low – With the help of Blockchain technology, the Financial Sector makes use of self-executing contracts or smart contracts which help bring down the costs of third parties, recordkeeping, and value transfers.
3) Blockchain helps in risk management – You may ask, “How?” Well, we do have an answer for that. With the use of Blockchain technology in the Financial Sector, there is no need for third parties in transactions and therefore the risks are less. Also, as transactions are recorded on every node within a network, risks related to funding management and credits are reduced to a great extent. When data cannot be tampered with, the reliability of the services provided by the Financial Sector increases.
4) Blockchain makes transactions faster – When there are no third parties involved in transactions, and smart contracts are used, the transactions obviously become faster.
How is the Financial Sector taking major advantage of Blockchain technology?
We have listed the ways in which the Financial Sector takes major advantage of Blockchain technology below:
1) Global Payments – Blockchain allows global payments made by the financial sector more time and cost-efficient. Do you want to know how? As we have already mentioned, there are no third parties involved in transactions, therefore global payments are done within seconds and at low costs. Global payments have become easier also because some Financial Services use Blockchain payment systems like Ripple and Stellar.
2) Universal Credit Score – The current credit scores used by many financial companies and banks may prove to be redundant in foreign countries. Blockchain removes this redundancy by allowing lenders to get hold of the financial transaction records to learn about the creditworthiness of a person. What adds the extra layer of security? The answer is “Smart contracts”.
3) Smart Invoicing System– Blockchain in the Financial Sector helps financial companies store invoices through the use of smart contracts. When details like due date, amount to be paid and client’s credentials are stored, it helps smart contracts update the status of the transaction as “paid” and notify the financial company, once the client pays the due.
4) Investments on Funds – Fund investment companies are increasingly using Blockchain these days to get access to legal, public, and personal information of the users to make the investment process easier.
5) Record-Keeping – Blockchain allows banks and insurance companies to keep a record of the transactions in a decentralized manner that reduces the chances of fraud due to the rigid nature of Blockchain that prevents data tampering.
6) Smart Contracts – As already mentioned above, the Financial Sector is increasingly using smart contracts or self-executing contracts so that the terms of the contract are automatically executed when the system identifies matching terms. Smart indeed! Isn’t it?
7) Secure filling of KYC norms – Banks are slowly exploring the option of using Blockchain to get over the challenge of proving identity with the help of PAN card, Aadhar Card, passport, etc. by ensuring transactions are cryptographically protected.
8) Faster claim settlement – Insurance companies are also turning towards Blockchain so that the relevant information regarding claim settlement is available only to the claimant and the insurance companies thus, allowing claims to be settled more quickly.
Future of Blockchain in the Financial Sector
Blockchain has a promising future in the financial sector, given the number of benefits it has and as per KPMG, it can bring down errors by up to 95% and lead to a rise in efficiency by 40%. Now, your transactions will not only be concluded at a faster pace but also will let you sleep well at night as it will become more secure too.